Testimony by Ambassador Peter L. Scher

U.S. Special Trade Negotiator

U.S. Senate Committee on Agriculture, Nutrition and Forestry

Washington, D.C.

March 1, 2000

Thank you Mr. Chairman and members of the committee for this opportunity to testify on one of the most important trade agreements for American agriculture in many years.

Last November, after years of negotiation, the United States reached a bilateral agreement with China on WTO accession. It secures broad-ranging, comprehensive, one-way trade concessions on China's part, granting the United States substantially greater market access across the spectrum of industrial goods, services and agriculture. This agreement strengthens our guarantees of fair trade. And it gives us far greater ability to enforce Chinese trade commitments. By contract, we agree only to maintain the market access policies we already apply to China, and have for over twenty years, by making China's current Normal Trade Relations (NTR) status permanent.

China's WTO accession is a clear economic win for the United States. Together with permanent NTR, it will open the world's largest nation to our goods, farm products and services in a way we have not seen in the modern era. Without permanent NTR, our competitors in Asia, Latin America, Canada and Europe will reap these benefits but American farmers and businesses may well be left behind. This is the fundamental choice before us as Congress debates permanent NTR.

But China's WTO accession also has deeper implications. Our relationship with China, given China's size and economic weight, affects all of America's foreign policy and security goals in Asia: from broad strategic interests to regional issues in Korea, Southeast Asia and elsewhere; human rights and religious freedom; weapons proliferation; environmental issues; labor rights; crime and narcotics trafficking; and many others. We have serious differences with China in a number of these issues, and have found areas of common ground as well. And we have a fundamental responsibility to develop a stable, mutually beneficial relationship in which we act upon areas of shared benefit and mutual interest. WTO accession will allow us to do so, as it complements and supports long-standing American goals in China policy:

• -By helping to open and liberalize China's economy, WTO accession will create new economic freedoms for Chinese citizens and promote the rule of law in many fields now dominated by state power and control. A number of leading Chinese and Hong Kong advocates of democracy thus endorse WTO membership not only for its economic value, but as a foundation for broader future reforms.



• -By integrating China more firmly into the Pacific and world economies, WTO accession will give China a greater stake in regional stability and prosperity. It will thus, together with our military presence in the Asia-Pacific and our regional alliances, be a factor in favor of long-term regional peace.

Overview of the Agreement

Before I update you on the status of negotiations on China's accession, let me give you a brief overview of the specific agriculture and food commitments we secured in our bilateral agreement last November. China's commitments on agriculture reflect every commodity of interest to us, and every trade policy issue affecting the prospects of American producers in the China market. They are comprehensive; they will be fully phased-in over a short period of time; they hold China to the same standard we would expect of all new WTO members; and in each case, they reflect specific and enforceable commitments.

Let me begin, by putting the technical issues in some broader context.

Overall, this agreement represents a comprehensive set of trade commitments. It covers food and agriculture, manufacturing, and services industries such as telecommunications, finance, the professions and others. It includes a product-specific safeguard in the event of import surges, an agreement to continue using "non-market economy" dumping methodologies for fifteen years, and much more. In every case, the commitments are specific and enforceable; will be fully phased-in over a short period of time; and hold China to the same standard we expect of all new WTO members, if we provide China with permanent NTR.

With respect to agriculture in particular, we will open China's market for all commodities of significant export interest to us, and address a range of broader policy issues of concern to American producers. To review the results briefly:

• -China will make significant cuts in tariffs, and complete them by January 2004. In the commodities of top concern to the United States - everything from beef and pork to citrus, processed foods, wine and dairy - tariffs will fall from an average of thirty-one percent to fourteen percent.

• -China will set up a tariff-rate quota (TRQ) system for bulk commodities like wheat, corn, cotton, barley, and rice. To give you just one example, China imported less than two million tons of wheat in 1998 and less than half a million tons in 1999. Under this agreement, China will set up a TRQ for wheat of 7.3 million tons immediately on entering the WTO. This will ultimately rise to over 9.6 million tons. The agreement gives a share of the TRQ to private traders, and has specific rules for TRQ operations and transparency.

- China will guarantee the right to import and distribute products without going through a state-trading enterprise or middle-man. Thus we can sell fresh fruit directly to retailers on the coast, or wheat to Chinese mills.

• -China has agreed to cap and reduce trade-distorting domestic support, and to provide greater transparency to make its domestic support measures more predictable. And it will eliminate export subsidies, thereby reducing competition for U.S. rice, wheat, corn and cotton in third-country markets.

• -And China agreed last year to eliminate sanitary and phyto-sanitary (SPS) barriers that are not based on scientific evidence even before full WTO membership. A team of Chinese citrus inspectors visited Arizona, California, Florida, and Texas last January, and a Chinese wheat team concluded a visit of the Pacific Northwest on Monday. As you know, the delegation signed contracts for fifty thousand metric tons of wheat from the Pacific Northwest earlier this week, the first shipment of wheat from this region of the United States in nearly twenty-five years. This shipment should allow us to test the new system to ensure that it really works.



• -While we are pleased that China has taken these steps, implementation is not moving as quickly as we would like, particularly with regards to meat and poultry. We won't be satisfied until China has made the necessary administrative changes to implement the agreement and exports of meat, wheat and citrus have occurred.

Overall, bilateral agreement addresses the full web of trade barriers in the China market: barriers at the border, unfair restrictions on marketing within China, and unscientific inspection standards. As it goes into effect, a fifth of the world population - now largely blocked from buying our agricultural goods - will become a new market for farmers, ranchers and food companies all over the United States.

Work Remaining

But the work is not yet done. China must complete bilateral market access agreements with a number of other WTO Members. It must also complete a multilateral negotiation at the WTO, principally covering commitments on rules. These steps are proceeding.

Obviously we cannot offer a precise date for the completion of this work. The EU made some progress during discussions last week in Beijing, but were unable to finalize an agreement. The other Members have far fewer issues to resolve with China, and may be able to act relatively rapidly.

Permanent NTR

Mr. Chairman, I believe the case for Congress to grant China Permanent Normal Trade Relations is quite compelling. No changes to U.S. law or import policies need to be made for China to become a WTO Member: we change none of our market access policies, lower no tariffs, change none of our laws controlling the export of sensitive technologies, and amend none of our fair trade laws. But we do risk losing the full benefits of the agreement we negotiated if we fail to grant China permanent Normal Trade Relations.

If this occurs - our Asian, Latin and European competitors will reap these benefits but American farmers, ranchers and food producers may well be left behind. And it is unacceptable for American producers to face a situation in which competitors from dozens of other countries - from Argentina and Canada to Europe and Australia - have a built-in advantage in the world's largest market. The short-term cost to farm incomes could be substantial, and the implications for long-term sales relationships still more profound.

Having China in the WTO will be good for U.S. agriculture. China has already begun adjusting its domestic agricultural policies in preparation for joining the WTO, with impressive results. Over the past year, the Chinese government has given up its very costly price supports. Cotton prices have been allowed to fall by forty percent, and wheat and corn prices are down twenty percent. Lower prices are already resulting in lower production.

Having China in the WTO will also enhance the world's ability to enforce China's obligations - granting China permanent normal trade relations will preserve our rights to enjoy the benefits of China's accession. China's WTO accession is, therefore, a critical issue of incomes and livelihoods for America's farm families. That is reason enough to support it.

But in a larger sense, it is also a test of statesmanship for our country. This agreement offers us the prospect for a relationship with the world's largest nation which may certainly have moments of tension and volatility, but in which we also act to find common ground and strengthen hopes for peace.

This is the opportunity before us; and it is one our country must not miss.

Thank you, Mr. Chairman and members of the Committee.